Introduction
2025 is not the year to pick products based on hunches or trending TikToks alone. Without data and financial tracking, your best-selling product can quickly become your biggest liability.
Proven Tip:
Start product research with tools that show margin potential—and sync sourcing data with your tax and accounting systems from day one.
Proven Tip: Use Data-Backed Sourcing with Cost-Tracking from Day One
Effective sellers in 2025 don’t guess—they use tools like:
- Jungle Scout, Helium 10, Everbee for sales data
- Alibaba, Jungle Scout Supplier Database, or ImportYeti to verify manufacturers
- Airtable, Zoho Inventory, or QuickBooks Commerce to track landed cost, duty, and packaging from the beginning
This saves time and helps you:
- Set pricing that actually protects margin
- Avoid sourcing from risky or non-compliant vendors
- Prepare clean financials for COGS, taxes, and IRS audits
IRC Tax Code Relevance
Product sourcing directly impacts deductible costs and your tax filings under:
- IRC §471 – Requires inventory to be properly accounted for
- IRC §263A – Capitalizes direct and indirect inventory costs (freight, handling, packaging)
- IRC §162 – Ordinary and necessary expenses including R&D and sample testing
- IRC §6001 – Accurate recordkeeping for product cost and supplier invoices
Failure to track sourcing expenses can lead to overstated profit and missed deductions.
Relevant IRS Forms
| Form | Purpose |
|---|---|
| Form 1125-A | Report Cost of Goods Sold |
| Form 4562 | Depreciate capitalized sourcing tools or equipment |
| Form 1120 / 1065 / 1040 Schedule C | Report business income and deductions |
| Form 1099-NEC | For any payments made to U.S.-based sourcing agents or consultants |
| Form 3115 | If changing accounting method for inventory cost tracking |
Example: Sourcing Smarter Boosted Margins by 31%
A home decor brand sourcing from China was manually estimating unit costs—excluding duty, labels, and returns. After switching to a digital tracker and negotiating freight-included pricing, they discovered their “profitable” product was actually losing 9% per order.
In Q2 2024, they switched to a vetted Vietnamese supplier, renegotiated MOQs, and tracked every cost with QuickBooks Commerce.
By Q1 2025:
- Gross margins increased by 31%
- Refund rate dropped by 40%
- Tax deductions were fully backed by supplier records
Step-by-Step Guide to Smarter Product Research & Sourcing in 2025
Step 1: Validate Product Demand
Use Jungle Scout, Helium 10, or Everbee to analyze monthly sales, competition, and profit potential.
Step 2: Vet Multiple Suppliers
Use ImportYeti or Alibaba Verified. Check shipping terms, MOQ, certifications, and factory audits.
Step 3: Track Landed Cost
Include product cost, shipping, duty, labeling, packaging, and warehousing. Use spreadsheets or inventory software.
Step 4: Test Before Scaling
Order samples, inspect quality, and estimate refund potential. Run small-batch launches to collect real data.
Step 5: Sync with Bookkeeping
Every sourcing payment—wire transfers, freight charges, duties—must be tracked and categorized properly for IRS reporting.
Conclusion
Guesswork kills profit. In 2025, successful product sellers combine tools, tax tracking, and smart negotiation to dominate their niche. Knowing your true product cost is not optional—it’s survival.
Call to Action
Need help calculating product margins accurately for tax reporting or reviewing your sourcing flow from a financial perspective?
Email Anshul Goyal, CPA EA FCA at anshul@kkca.io to schedule a sourcing-to-tax consultation.
Disclaimer
This content is provided for educational purposes only. It should not be considered tax or legal advice. Please consult a qualified CPA for personalized guidance.
FAQs
1. Can I deduct shipping and customs charges for sourced inventory?
Yes, they’re included in COGS under IRC §263A.
2. What is a “landed cost”?
It’s the total cost of getting the product to your warehouse, including purchase price, shipping, duties, and packaging.
3. Do I need to file 1099s for sourcing agents?
Yes, if they are U.S.-based and you paid them $600 or more.
4. How often should I review product profitability?
At least monthly. Product costs and ad spend shift frequently.
5. Should I use an accountant when sourcing internationally?
Absolutely. It ensures proper COGS reporting, foreign currency handling, and audit-ready books.
About Our CPA
Anshul Goyal, CPA EA FCA, is a U.S.-licensed Certified Public Accountant and IRS Enrolled Agent. With deep experience in inventory-based businesses and international sourcing, Anshul helps clients minimize product waste, manage COGS, and stay compliant with IRS rules for cross-border trade. He’s helped hundreds of Shopify and Amazon sellers source smarter and grow faster.
Email anshul@kkca.io to set up a discovery call.